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Oil dips as fears of supply disruption ease
OIL prices slid on Tuesday as investors reconsidered the likelihood of Middle East supply disruptions in the wake of the United States killing a top Iranian military commander.
Brent crude fell as much as 1.5 per cent to US$67.86 a barrel and was at US$68.39, down 52 cents, at 0737 GMT. US West Texas Intermediate (WTI) crude futures were at US$62.85, down 42 cents, after earlier dropping 1.5 per cent to an intra-day low of US$62.30.
Prices surged during the previous two sessions, with Brent reaching its highest since September while WTI rose to the most since April. The gains followed fears of escalating conflict and potential Middle East supply disruptions after the Jan 3 drone strike in Baghdad that killed Iran's military commander Qassem Soleimani. But, some analysts have tempered expectations for a widespread conflict.
"The market's clearly worried about the potential for supply disruption but there's no obvious path forward from here," said Lachlan Shaw, head of commodity research at National Australia Bank.
"It's all a matter of scenarios that may impact oil production or not, so the market seems to have recalibrated in the last 24 to 36 hours on some of those likelihoods."
He added that Iran will need foreign currency earnings from continued oil exports and it will be counter to its interests if it tries to block the Straits of Hormuz. Roughly 20 per cent of the world's oil passes the Middle East waterway, which borders Iran.
Consultancy Eurasia Group said Iran is likely to focus more narrowly on US military targets instead of energy targets.
"That's not to say it won't continue low-level harassment of commercial shipping or regional energy infrastructure but these activities will not be severe," it added.
Prices were also supported by higher compliance among the Organization of the Petroleum Exporting Countries (Opec) on meeting production quota curbs aimed at reducing supply. Opec members pumped 29.50 million barrels per day (bpd) last month, down 50,000 bpd from November's revised figure, according to a Reuters survey.
US crude oil stockpiles likely dropped last week for a fourth week in a row as exports ramped up, a Reuters poll showed on Monday.
Six analysts estimated, on average, that crude stocks fell by 4.1 million barrels in the week to Jan 3.
Inventories for refined products were expected to rise with gasoline stocks set to gain for the ninth straight week, according to the poll.
Even before Gen Soleimani's death, investors were increasing their bullish WTI holdings, with money managers raising their net-long positions in the week to Dec 31, the Commodity Futures Trading Commission said on Monday. REUTERS